Author: , CertPFS, CertCII(MP), CeRGI, CeLTM, CeRER
Last updated: August 3rd, 2022
An Equity Release scheme provides a tax-free sum of money, using the value of your current home. As long as you are a UK homeowner aged 55 or older, equity release can provide a lump sum or steady income to make your years of retirement more comfortable.
What does Equity Release involve?
There are two main types of equity release plan in the UK; a lifetime mortgage and a home reversion plan.
A lifetime mortgage plan is the most popular scheme, and allows you to retain complete ownership of your home. With a lifetime mortgage, you borrow a proportion of you property’s value, which will not have to be repaid until you sell your home, or in the event of your death. The interest for this mortgage is “rolled up” until the end of the loan, when it will be payable by your estate. To help you decide if a lifetime mortgage is right for you, we provide an obligation-free Equity Release Calculator.
Home reversion schemes involve selling a percentage of your home in exchange for a lump sum. You can remain in your home rent free for as long as you need, and the loan is repaid when the house is sold.
What are the benefits of Equity Release?
The main benefit of Equity Release is that you can access money tied up in your home, without having to move out or make any repayments during your lifetime. The nature of an equity release scheme also means that the amount of inheritance tax to be paid by your estate is often reduced, and the NNEG (no negative equity guarantee) protects your loan in the event of a market downturn.
Using an equity release scheme to unlock cash is a simple way to provide income for the rest of your life, however it’s important to keep in mind that it will impact the value of your estate, and can also affect any means-tested benefits you are currently entitled to.
The equity release market is fully regulated by the Financial Conduct Authority (FCA), and your options should be fully explained to you before you sign up to any equity release plan.